CCI clamp down: Way ahead for OEMs and suppliers

CCI (Competition Commission of India) recently issued penalties against 14 OEMs for restricting the sale of their respective vehicle spare parts outside of their authorised network, and for limiting the external access of their tools, machinery and skills for independent servicing companies and unorganized service centres.

In addition, the commission also directed manufactures to do away with the condition of void warranty in case the vehicle is serviced anywhere outside of the authorized network. Interestingly the order comes in the wake of increased regulatory inspection of the Chinese automotive industry by China’s anti-monopoly regulator, National Development and Reform Commission, where several car and parts manufacturers are being investigated on similar charges.

The automotive parts and spares market in India is valued at close to INR 35,000 Crores, with passenger cars accounting for nearly 46%, at INR 16,400 Crores. Much like the long standing battle between branded pharmaceutical companies and India’s generic drug manufacturers, aftermarket spares have also seen the debate intensify over the last two years.

At one end lie the independent servicing companies outside of the OEM dealer networks, un-organized repair and maintenance companies, component manufacturers and dealerships who believe that current OEM practices are restricting access to spare parts and related technical know-how, which is making these spares more expensive and less accessible for consumers.

On the other hand, is the OEM perspective that a vehicle, unlike some other consumer based machines, is complex, needs high reliability, and has defined OEM accountability long past the designated warranty period which requires a traceable access to parts.

Much of the design and integration within a vehicle are a product of intensive modular exercises which are undertaken over long periods of time and under specific conditions. The intellectual property compliances when it comes to technical know-how and component design further impact reservations from the OEMs.

While 60 days have been given for penalty submission, the OEMs have the opportunity to approach the Competition Appellate Tribunal and challenge the CCI order. Since most of the OEMs have already taken remedial judicial action by approaching the higher courts, there exist no regulatory and guiding principles for use, maintenance or manufacturing of spare parts in the open market.

Thus change, while the judiciary takes its course, will be in terms of making sustainable amendments to the policy keeping in view both the near term and long term interests of all parties including the customer. Some of the near term and preparatory changes which OEMs should envisage include:

I. Through its networks, the endeavour should be to enhance the availability of parts across urban and rural centres and through multiple channels of distribution, including e-retailing

II. Financial implications should be evaluated and alternatives like higher number of (smaller) 2S facilities to be considered – ensure retention, enable reach and build volume. Brand based trust will always make OEM the preferred choice

III. Categorization of parts, between those which impact safety and overall vehicle reliability, to those which are more external and can be ‘outsourced’ for external channels

IV. Training and sharing of technical knowledge from OEMs and component manufacturers may become commercialized through vocational centres. Should this happen, it will have an added advantage of creating a bigger pool of available manpower which could be utilized across OEMs

All in all, while the current order has brought the focus back on making the market more competitive, there are several nuances to be considered before the 215 page order is fully decoded, clarified and progressively deployed. Meanwhile, OEMs can work on building their individual brands stronger, educating the customers, and ensuring seamless reach – sans the waiting periods and elongated service appointments.

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